TNAG-0563-FCO40-658-Construction-of-an-underground-railway-system-in-Hong-Kong-1975 — Page 140

FINANCIAL APPRAISAL

11.1

11.2

11.3

The financial testing carried out with the refined figures for the modified system show that the rate of return and payback are fully acceptable, and that the borrowing requirements are reasonable but approaching the limits of acceptability.

Any diminution of projected revenue would make return and payback unacceptable without materially affecting the borrowing position. Conversely, failure to obtain the indicated level of export credit would have little effect upon return or payback but a serious effect on borrowing.

Although it is emphasized that cost, revenue and financial projections have been prepared on a prudent commercial basis, the introduction of price escalation despite the physical modifications made to the system, has inevitably reduced the reserve position available in the event of unforeseen circumstances arising in short, reduced the contingency element. There is a limit to further cost reductions or additional revenue in the event of this being necessary to offset unforeseen adverse developments in one of these areas or elsewhere.

11.4

For this reason, and to ensure that the MTR remains financially viable in the event of revenue or credit failing to meet projected levels for unforeseen reasons, probably arising from events beyond the control of the Corporation or the Government, it is recommended that the Corporation should proceed simultaneously with property development on the lines indicated, and also include premium bonds as part of its financing programme. With these safeguards, it is considered that the modified initial system would remain financially viable in any event.